TOKYO Japan's Nikkei share average steadied on Friday to hold just below 9,600 after rallying 9 percent this month, staying on track for its best February performance in two decades.
Global equities have been buoyed by a run of strong economic data out of the United States, as well as the European Central Bank's liquidity injection of nearly half a trillion euros and further easing steps by the Bank of Japan and the Bank of England. The Nikkei is up 13.5 percent so far this year.
Masayuki Otani, chief market analyst at Securities Japan, said investors and funds were holding off from selling as this rally looked to have further to go.
"The Nikkei's gains are positive as investors are buying back stocks that were heavily sold off last year and investors are rotating daily through sectors like iron & steel, financial stocks," he said.
The Nikkei .N225 was flat at 9,597.19 by the midday break after trading as high as 9,636.40 earlier, a 6-1/2-month high. Trading volume after the morning session was 77 percent of its full daily average for the past 90 days.
Nomura technical analyst Shoichiro Yamauchi said he expected the rally to pause for a week or two before the Nikkei tested 10,000, a level not seen since early August.
"We see the next upside target as the 8 July 2011 rally high of 10,207, close also to the 10,169 level representing a rise of twice the magnitude of the decline from the October 2011 high to the November low, but we think a cooling off period of a week or two will be needed before an attempt is made at the 10,000 level," Yamauchi said in a note.
But some players warned of a likely correction in the coming months.
"I think the correction will come in March and April and it will fall back towards 9,000 or so due to earnings forecasts being revised down for next fiscal year," said Ryota Sakagami, chief strategist of equity research at SMBC Nikko Securities. "That will weigh on the Japanese market."
The benchmark Nikkei was deep in "overbought" territory, with the 14-day relative strength index at 80. Seventy or above is considered overbought.
Other technical indicators remained positive, however. The Nikkei's 25-day moving average broke above its 200-day average to form a "golden cross" on charts, while a golden cross was already formed with the 13-week and 26-week moving averages.
The broader Topix .TOPX added 0.2 percent to 831.20 on Friday.
Among bluechips, Nippon Steel Corp (5401.T) rose 3.1 percent, while Nomura Holdings (8604.T), Japan's top investment bank, added 0.8 percent.
Kyocera Corp (6971.T) lost 2.2 percent after Bank of America Merrill Lynch downgraded the electronics firm to "hold" from "buy" and cut its price target to 7,200 yen from 8,000.
Anritsu Corp (6754.T), on the other hand, got a lift from a JPMorgan price target hike. Shares of the manufacturer of communication equipment rose 1.5 percent.
(Editing by Edwina Gibbs)